AMR says stock may be worth something after bankruptcy after all

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Wilfredo Lee/AP

In this Thursday, Oct. 11, 2012 photo, an American Airlines Boeing 757 passenger jet takes off as another waits on the taxiway at Miami International Airport in Miami. Directors of American Airlines' parent company likely won't make a decision when they meet Wednesday, Jan 9, 2013, to consider a possible merger with US Airways, even as momentum for a deal is building. Investors have been bidding up US Airways' stock price, and leaders of the two pilot unions agree on how to combine contracts, two developments that analysts say strengthen the case for a tie-up. (AP Photo/Wilfredo Lee) 01092013xBIZ

AMR Corp. said Tuesday that its shares — expected to be worthless when the parent of American Airlines Inc. exits bankruptcy this year — may have some value after all.

The reason: possible “strategic alternatives,” i.e. mergers.

In a letter dated last Thursday and released Tuesday, AMR bankruptcy attorney Harvey Miller wrote that there’s a “reasonable possibility that there may be value for AMR equity holders.”

AMR disclosed the letter the day before the company’s board of directors is scheduled to meet, with a potential merger with US Airways Group Inc. expected to dominate the agenda.

The timing and language of Miller’s letter suggests that the two airlines may be closer to announcing a decision, possibly before the end of January.

AMR, American and other subsidiaries filed for bankruptcy protection on Nov. 29, 2011. After public prodding by US Airways executives, AMR agreed in August to consider “strategic alternatives” such as a merger.

In a letter to Brian S. Masumoto, a Justice Department attorney in the Office of the U.S. Trustee, Miller explained that early on, AMR, American and the unsecured creditors committee in the case had opposed creation of an equity-holders committee. The parties believed there was little likelihood that AMR shares would be worth anything, he wrote.

“Since January of 2012, the Debtors have made remarkable progress in stabilizing their businesses and improving their prospects,” Miller wrote. He also noted that the various parties “are currently in the process of exploring strategic alternatives.”

“In that connection, it appears that the value of the Debtors has significantly appreciated. Depending upon the ultimate strategic alternative adopted and pursued, there exists a reasonable possibility that there may be value for AMR equity holders consistent with the absolute priority rule,” he wrote.

Slide to bankruptcy

AMR shares had topped $40 in early 2007 as the company was in the middle of two profitable years. However, AMR lost billions of dollars since then, and its shares slid as it approached bankruptcy in fall 2011.

AMR’s shares closed at $1.62 on Nov. 28, 2011, the day before the airline filed for bankruptcy at 6 a.m. It closed Nov. 29, 2011, at 26 cents after falling as low as 20 cents a share.

The stock, which was taken off the New York Stock Exchange and now trades over the counter under the AAMRQ stock symbol, has been on a slow rise since early 2012, with a sharp run-up over the past month.

As recently as Dec. 5, the stock closed at 50 cents. But it has jumped 80 percent since then, closing at 90 cents on Tuesday — before AMR filed documents with the Securities and Exchange Commission that included Miller’s letter.

Often in bankruptcy cases, holders of common stock receive nothing for their shares.

However, airline analyst Kevin Starke and Michael Derchin of CRT Capital Group LLC had predicted in a mid-December report that some recovery for AMR shares was “not out of the question.”

They noted that members of the “Ad Hoc Committee of AMR Corp. Creditors” had disclosed “substantial holdings” of AMR stock.

“This cannot have gone unnoticed, and the action in the AAMRQ share price seems to confirm this,” they wrote.

In a Dec. 24 update, members of the ad hoc committee listed ownership of 21,590,677 shares of AMR stock. That represents about 6.4 percent of the 335.4 million shares outstanding.

Reversal of warnings

The Miller letter reverses the warnings that AMR has included in many regulatory filings since entering bankruptcy, such as notices included in its monthly operating reports to the court.

“The Company cannot predict what the ultimate value of any of its securities may be or whether holders of any such securities will receive any distribution in the Debtors’ reorganization,” its notice in its November report states.

“However, it is likely that the Company’s common stock will have little or no value at the time of the Company’s emergence from bankruptcy, and the common stock could be canceled entirely upon the approval of the Bankruptcy Court. In the event of such cancellation, amounts invested in the Company’s common stock will not be recoverable.”

Indeed, Tuesday’s filing included a caveat that cautioned “investors and potential investors not to place undue reliance upon the information contained in the Letter, which was not prepared for the purpose of providing the basis for an investment decision relating to any of the securities of the Debtors, including the Company’s securities.”

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